FISCAL POLICY AND LENDING RELATIONSHIPS

Giovanni Melina and Stefania Villa

Economic Inquiry, 2014, vol. 52, issue 2, 696-712

Abstract: type="main" xml:lang="en">

This paper studies how fiscal policy affects loan market conditions in the United States. First, it conducts a structural vector-autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock. (JEL E44, E62)

Date: 2014
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Related works:
Working Paper: Fiscal Policy and Lending Relationships (2013)
Working Paper: Fiscal policy and lending relationships (2012)
Working Paper: Fiscal Policy and Lending Relationships (2011)
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